Big Insights From Delta Air Lines Earnings Call

MINNEAPOLIS – Delta Air Lines stock soared on word that they’d beated analyst expectations for the second quarter and reinstated strong finanial projections for the rest of the year – when last quarter, with uncertainty around tariffs and their effect on the economy, the airline felt things were too uncertain to stand by any forecast.

The earnings call, though, was enlightening. Coach demand is down, premium demand continues to grow, and that’s shaping the airline’s strategy.

Delta operates a major hub at Detroit Metropolitan Airport.

Delta is looking to add premium seats to existing aircraft. And this also reflects a renewed desire to offer upgrades. Delta’s President Glenn Hauenstein shared that they see premium business continuing to grow and that they want to add premium seats to planes in order to sell more premium seats but also to upgrade more.

Hearing Hauenstein speak positively about upgrades is unusual. He’s led the charge against upgrades and to monetize every premium seat possible, even for small amounts of money. They’ve been willing to upsell long haul business class for as little as $299 instead of allowing upgrades.

In 2009, 81% of Delta’s first class seats were filled with awards, upgrades or employees. 11% of those seats were filled with paying passengers, and 8% were empty. Now about 12% of first class seats go to upgrades. Other airlines have largely followed Delta’s lead, preferring to sell seats to non-frequent flyers for tens of dollars domestically instead of offering upgrades on a complimentary basis to customers spending tens of thousands of dollars annually.

Tariffs hurt U.S. aviation. and they’re seeing trouble in travel by the auto and manufacturing sectors, precisely areas of the economy that the administration ostensibly wants to help with their efforts – these are counterproductive.

Declining travel to the U.S. by Europeans is partially offset by the tanking U.S. dollar. That makes foreign-source revenue more valuable. Peak travel periods have also spread out into shoulder seasons, helping to offset weeakness as well. Here’s Hauenstein:

Delta expects $8 billion from American Express this year. Card spend – and revenue from American Express – were up 10% in the quarter, according to CFO Dan Jenke. And Hauenstein says they’re on track for $8 billion:They’re still planning to strip down business class benefits and charge extra for those. They call it ‘segmentation’ and they want to do to premium cabins what they did to economy (with basic economy, main cabin and Comfort+, or they’ve described it in the past ‘good, better, best’)

Business travel isn’t fully back. Ed Bastian acknowledges that flexible schedules – not having everyone in the office every day – and the ability to do some meetings virtually in ways we didn’t used to be able to – means that “15% or 20%” of business travel hasn’t returned. He frames this as an upside opportunity but really it’s a systemic change to the business.

Customers are starting to book farther in advance again – a little bit. Everyone holds off booking until the last minute in times of uncertainty. We saw last minute ticket purchases during Covid (is there going to be another outbreak? am I going to be allowed to travel where I want to go?) and there was a move to last-minute travel during peak uncertainty around tariffs in April. But consumer confidence is coming back, and earlier purchasing of tickets is normalizing.

What flights are being cut with coach demand down 5%. They’re dropping early morning and night flights, and Tuesday and Wednesday flying, according to Hauenstein. And so is everyone else.

They’re working on ‘overflow’ space for clubs. In response to a question from the Wall Street Journal‘s Ali Sider, Hauenstein claimed that crowding in lounges is entirely the fault of weather but that they are doing contingency planning to address that, and that crowding will otherwise be eliminating in 18-24 months.